Autobytel Succeeds Globally

Autobytel.com
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CEO Mark Lorimer is no average dot-com honcho. Unlike so many other Web-made millionaires, he doesn't bend over backwards to accommodate people out of got-rich guilt. This big, burly, friendly looking guy, with thinning red hair and a beard, doesn't bother to make time for pleasantries that don't involve his auto-shopping site. In conversation Lorimer harps on the strength of his business, and anyone who veers too far from his agenda gets shut down quickly.

Lorimer, who's 46, can afford to be brusque. In a sea of useless shopping sites, he's built a truly successful e-commerce outfit. The trouble is not many people seem to know that, from the looks of its $9.69 share price, 83% off its $58 all-time high during its first trading day in March 1999.

Autobytel was the first in the online auto-shopping space with independent comparison-shopping information like dealer invoice and retail price. At no cost, buyers can submit a purchase request for the car they want to buy. The site forwards these requests via e-mail to a local dealer who has been chosen to participate in the Autobytel network. The dealer contacts the consumer within 24 hours and extends a guaranteed price before shoppers set foot on the lot. Due to current franchise laws that are not likely to change anytime soon, every car sale must pass through a dealer, an arena that every consumer detests.

"Our brand promises consumers that we act as a Good Housekeeping seal of approval for any dealer we send them to," says Lorimer, who repeats the catch phrase "selection protection" often. Lorimer's mission is to make going to a dealer as painless and inexpensive as possible. By bringing the process online, dealers save an average of $1,200 per car on sales and marketing, according to Deutsche Banc Alex. Brown. This in turn reduces what consumers pay for a car using Autobytel by an average of $1,000. To stop dealers from gouging and keeping the savings for themselves, the site keeps an eye on things and drops anyone that over-charges or mistreats consumers. Lorimer proudly boasts that to date he's tossed out 300 dealers that weren't up to snuff, from his network of 4,800.

Autobytel's revenue comes from the flat-rate monthly subscription fees dealers pay to get the site's sales leads, which Lorimer says is well worth it. "We drive 14% of our dealers' sales on average," he explains.

Autobytel.com says it generates $1.2 billion in car sales through its dealers, which breaks down to a cool $1.6 million an hour. According to J.D. Power and Associates, Autobytel.com generates as many new car sales as its two closest competitors, Autoweb and Carpoint, combined. It now accounts for nearly 50% of online car sales. Deutsche Banc Alex. Brown analyst Jeetil Patel says 25% of Autobytel visitors buy a car. "That's the highest conversion rate in the industry, including the people who walk onto a dealer's lot," says Patel. He estimates the site will turn a profit at the end of 2001.

While competitors are still struggling to get the U.S. market straight, Autobytel is already well on its way to becoming a player in the international online car sales market. It has operations up and running in the U.K., Sweden, Canada and Japan. Autobytel Australia is set to launch mid-2000, and sites are now under way in Denmark, Norway, Finland, Belgium, the Netherlands and Luxembourg. "We're also working on France, Germany, Spain, Portugal, Italy and South America," says Lorimer. The Autobytel business models abroad vary, with some companies charging dealers the flat subscription fees used in the U.S., and others getting a cut of any completed sales.

The rollout is ambitious not just in scope, but also to the extent that car sales abroad are extremely tricky. Industry regulation, distribution and taxation vary significantly from country to country, as does the car industry's regional culture. "The challenge is to create separate companies that can be scaled within a country's existing distribution system," says Lorimer. That's why Autobytel is setting up separate sites for each country in partnership with regional corporate powerhouses, many of which are huge in the overseas auto market. These partners will be key to Autobytel's success abroad and Lorimer knows it. "The whole purpose of having local partners in each country is so that I don't hamper them by making uninformed guesses from here in Irvine, Calif.," he says.

Partners include London-based Inchape plc, which is the world's largest independent auto distributor with 3.4 billion ($5.4 billion) in 1999 revenue, and also has a 3% stake in Autobytel USA. Other major partners abroad are Pon Holdings, B.V. a leading VW, Audi and Porsche dealer, ITOCHU, a $117 billion Japanese conglomerate with a major auto industry presence and Bilia another top-ten European distributor based in Sweden. "Autobytel asked us if we'd like to be in their dealer network," says Inchape CEO Peter Johnson, "and I said no, I want to own a piece of the company."

"Autobytel is going about its international activity in a wise fashion," says Chris Denove, director of automotive distribution analysis for J.D. Power and Associates. "They've done a good job mixing what they've learned does and doesn't work in the U.S. with the idiosynchrasies of each country." Denove is perplexed as to why investors haven't recognized Autobytel's success here, much less abroad. "I've watched what they do and quietly applauded, and I see that the market price hasn't risen, and wonder why."

Autobytel is well ahead of its six U.S. counterparts, none of whom have announced plans to take their businesses abroad. There are also several European startups doing online car sales. "All they're doing is posting information," says Inchape's Johnson. "Autobytel's ability to fill an order through its dealer network will make the difference in its success."

What's remarkable about Autobytel's international push is the careful way the company is going about it to prevent its balance sheet from bleeding red, and to consider the current state of flux in European auto regulation. The U.S. firm has an 84% stake in Autobytel Europe, a holding company, which in turn holds majority stakes in the country-specific companies. "They're establishing a brand abroad in an off-balance sheet way, without incurring all those expenses domestically," says Deutsche Bank's Patel. He adds that to get the success of Autobytel abroad back on the balance sheet here in the U.S., all the U.S. arm has to do is buy back Autobytel Europe or take either it or the country-specific companies public.

This strategy will also serve the company well depending on whether the European Union enacts a new set of laws governing the industry. Presently European car dealers are exempt from E.U. competition laws, which means car distributors can basically divide territories among themselves. "If the block exemption is renewed, you need a strong local presence in each country, which we have," says Lorimer. "If that doesn't happen, then we have the ability to roll all these companies back into one."

Lorimer flashes a big grin and leans back in his chair, feeling justifiably smug about his master plan, which so far looks crash proof. But nobody doing business on the information superhighway knows exactly what roadblocks might lay just around the corner.